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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Ed = (%dQd)/(%dP). Ignore negative sign






2. Two goods are consumer substitutes if they provide essentially the same utility to consumers






3. Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF






4. The least competitive market structure - characterized by a single producer - with no close substitutes - barriers to entry - and price making power






5. The combination of labor and capital that minimizes total costs for a given production rate. Hire L and K so that MPL / PL = MPK / PK or MPL/MPK = PL/PK






6. The study of how people - firms - and societies use their scarce productive resources to best satisfy their unlimited material wants.






7. For one good - constrained by prices and income - a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received






8. Additional costs to society not captured by the market supply curve from the production of a good - result in a price that is too low and a market quantity that is too high. Resources are overallocated to the production of this good






9. A very diverse market structure characterized by a small number of interdependent large firms - producing a standardized or differentiated product in a market with a barrier to entry






10. Measures the cost the firm incurs from using an additional unit of input. In a perfectly competitive labor market - MRC = Wage. In a monopsony labor market - the MRC > Wage






11. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources






12. Indirect - non-purchased - or opportunity costs of resources provided by the entrepreneur






13. Exists if a producer can produce more of a good than all other producers






14. The practice of selling essentially the same good to different groups of consumers at different prices






15. When firms focus their resources on production of goods for which they have comparative advantage






16. Occurs when LRAC is constant over a variety of plant sizes






17. A good for which higher income increases demand






18. A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax






19. A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly






20. Ex -y = (%dQd good X) / (%d Price Y). If Ex -y > 0 - goods X and Y are substitutes. If Ex -y < 0 - goods X and Y are complementary






21. Ed = 1






22. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit






23. The firm hires the profit maximizing amount of a resource at the point where MRP = MRC






24. Ed < 1






25. The output where AVC is minimized. If the price falls below this point - the firm chooses to shut down or produce zero units in the short run






26. The difference between total revenue and total explicit costs






27. Goods that are both nonrival and nonexcludable. One person's consumption does not prevent another from also consuming that good and if it is provided to some - it is necessarily provided to all - even if they do not pay for that good






28. The difference between total revenue and total explicit and implicit costs






29. Ed > 1 - meaning consumers are price sensitive






30. Models where firms agree to mutually improve their situation






31. The additional cost incurred from the consumption of the next unit of a good or a service






32. Production inputs that cannot be changed in the short run. Usually this is the plant size or capital






33. MUx / Px = MUy/Py or MUx/MUy = Px/Py






34. Ed = 0 - no response to price change






35. Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials






36. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter






37. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity






38. A period of time long enough to alter the plant size. New firms can enter the industry and existing firms can liquidate and exit






39. The lost net benefit to society caused by a movement away from the competitive market equilibrium






40. Measures the value of what the next unit of a resource (e.g. - labor) brings to the firm. MRPL = MR x MPL. In a perfectly competitive product market - MRPL = P x MPL. In a monopoly product market - MR < P so MRPm < MRPc.






41. Two goods are consumer complements if they provide more utility when consumed together than when consumed separately






42. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






43. All firms maximize profit by producing where MR = MC






44. In the case of a public good - some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding and forces the government to provide it






45. An economic system based upon the fundamentals of private property - freedom - self-interest - and prices






46. The imbalance between limited productive resources and unlimited human wants






47. The output where ATC is minimized and economic profit is zero






48. The change in quantity demanded resulting from a change in the price of one good relative to other goods






49. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.






50. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.






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